ENDLESSLY ESCALATING LAND PRICES MEANS WE MUST ABOLISH INCOME TAX
My colleague Dr Gavin Putland’s work is so compelling, sometimes I should step aside from my blog and invite others to take a peep at it.
Gavin sums up why the GFC occurred and what we need to do about it here. It might sound technical, but it’s worth reading, because it says it all. Policy makers take note:-
“A simple equation involving price, rent, appreciation, interest and tax predicts that for realistic values of the parameters, the price of land should be infinite — or, if finite, far in excess of lenders’ capacity to supply credit and of borrowers’ capacity to service loans. In practice this means land prices will be bid upward until the financial system breaks, causing a credit crunch whose effects flow through to the rest of the economy. The associated “correction” in land prices, perhaps combined with financial reforms ostensibly designed to prevent any recurrence, eventually restores confidence. But unless the parameters in the equation are permanently changed, the recovery merely sets the stage for the next crash. The only parameters that can be permanently changed are those pertaining to tax. Paradoxically, the indicated tax reform would enrich property owners: by removing perverse incentives and encouraging investment in infrastructure, it would increase capacity to pay for land, so that the new (stable) price trajectory would be higher than the present (unstable) one. The alternative to such reform is a continuation of periodic financial crises and recessions.”